Friday, April 3, 2009

A Way Out of the CIB Mess: Chapter 11 Bankrutpcy

Given the chilly reception the Indiana House leaders are giving to the CIB Bailout plan concocted by Senator Luke Kenley, it is becoming increasingly clear that CIB's lobbyists may not get the revenue it needs to continue as a viable entity. Certainly bailing out th CIB by making Indianapolis the city with the highest hospitality taxes in the country is not a good idea. Last time I checked, Indiana has cold, snowy Winters and isn't blessed by being on an ocean. Having the highest hospitality taxes in the country will deal a major blow to the convention/tourism business.

There is a way out of the current mess. It is called Chapter 11 bankruptcy. Chapter 11 would give the bankruptcy court the power to rewrite CIB's contracts. One of those contracts that should be rewritten is the Colts-Lucas Oil Stadium sweetheart deal. Also, bankruptcy would allow the court to rework the debt load of the CIB. One thing that has been lost in this debate over the CIB's annual operating deficit is that the CIB also enormous debt problems and if that debt can't be reworked voluntarily, bankruptcy would have had to happen anyway.

In conjunction with the bankruptcy, the State and City should insist on changes to the CIB. Bob Grand needs to go along with the entire current board, most of which have major conflicts of interest that should have precluded their appointment in the first place. There should be a major rethinking of who should be on the Board and who should appoint those individuals. Clearly there need to be more citizen-type people on the board. Right now the Board is little more than a rubber stamp for the deals the leaders of the CIB cut in the backroom with their patrons. Finally, the State and/or the City needs to demand an end to CIB's insistence that it be allowed to operate like a secret organization. It's unfathomable that a public entity like the CIB could operate in the red for 10 years without even disclosing that fact to the public. That is unacceptable.

9 comments:

Jon said...

It's easy and makes sense and that is why the city won't do it.

Downtown Indy said...

From the "Lease"

"SECTION 19.2. Change in Condition. This Agreement may be terminated at any time
during the Term in the following instances:
...
(b) by Club, upon the adjudication of CIB as bankrupt, or CIB suffering permanent or
temporary court-appointed receivership of all or substantially all of its property or assets, making
a general assignment for the benefit of creditors or suffering the filing of a voluntary or
involuntary bankruptcy petition that is not dismissed within sixty (60) days after filing, in which
case termination shall be effective thirty (30) days after written notice is given of such intent to terminate;
'''"
And Irsay probably would exercise his option to terminate, rather than renegotiate anything.

Downtown Indy said...

It's highly unethical for Bob Grand to come in, take over, and for more than a year not go public with the CIB's financial plight. A change in leadership but still the same old 'Mushroom Corp' organizationproun. (You know, 'keep them in the dark and feed them manure')

Paul K. Ogden said...

DI,

I highly doubt that Irsay would exercise his option to terminate under the bankruptcy clause. It's very unlikely he'll get a similiar sweetheart deal from another city, especially in this economy, is not at all realistic.

With a BK possibility on the table, Irsay can bend voluntarily, or the CIB can go into bankruptcy and the judge will bend the contract for him.

If he chooses to walk rather than give up a couple things in the contract, he walks. We'd probably make more money off of LOS without him. Nonetheless, at this time, Irsay has virtually no leverage if CIB considers bankruptcy.

The art of negotiation is knowing when you have leverage and exploiting it. You put bankruptcy on the table, the CIB suddenly have leverage and can force Irsay to cave or let the judge do it for him Of course that's not how the CIB negotiates.

Downtown Indy said...

I suppose the other joker in the deck is the naming and advertising fees that Irsay would lose. Lucas pays, what, $10M per year I think? Who know what the advertising nets him.

And they're still silent on the VIP parking issue that, as far as I know, is STILL unresolved. Is that the next 'shoe' to drop?

Downtown Indy said...

And now ol' Bob threatens the Stadium might close if he doesn't get his bailout.

Grandstanding

I know said...

A great piece was just aired on Lou Dobbs tonight where it called out the unemployment mess in Indiana.

It specifically called out the current administration in Indiana for the paying out more in benefits than it takes in from employers.

That surely calls out a pattern in Indiana government. The CIB outspends the income, the State builds a palace and cannot afford to operate it, the companies are leaving at a rate faster than a bullet and the benefits being paid do not match the tax taken in.

Other State agencies lay out lucrative contracts to their friends and stand by while their friends cannot match the financial obligations they agreed to.

When does the whole State go bankrupt on bailouts, tax breaks and recovery for the friends and family plan?

Section 19.2 is similar to state codes of financial obligations and termination clauses. When will the State enact their codes? Never, their friends in the legislature, the lobbyists and the good old boys that got the contracts have to be taken care of. USE OTHER PEOPLES MONEY!!!! The taxpayers!

HOOSIERS FOR FAIR TAX said...

"The art of negotiation is knowing when you have leverage and exploiting it."

Paul, you are right about that. They need us right now more than we need them. And everyone knows it.

Keep up the pressure.

Paul K. Ogden said...

It was pointed out to me by another attorney that a bankruptcy of the CIB might be more appropriately filed under little used Chapter 9, which deals with municipalities. I read some summaries on Chapter 9 and it looks like it could go either way -Chapter 9 or 11. It depends on whether the CIB is viewed more as a governmental entity, than the a non-governmental entity. Personally, I hate it when people try to claim entities like the CIB and the Airport Authority are private entities because that to mean means little control over an entity that serves a public purpose.

But after a brief review of some summaries of Chapter 9, I think that route would actually be more beneficial to the CIB. While the court has less authority under Chapter 9, that less authority appears to be more with respect to control over the municipal debtor, not the creditors. The creditors (i.e. the Pacers, Colts, etc) would not even be be allowed to submit a reorganization plan under Chapter 9 unlike Chapter 11.